Splunk: Could They Be the Google of The Internet of Things?

By Tiernan Ray

Earlier today I had a meeting with Francois Meunier of Morgan Stanley, who last week penned a 96-page paper on the Internet of Things, or “IoT,” as he calls it, along with several colleagues at Morgan in different areas of tech.

Meunier was in town from the bank’s offices in London and was kind enough to spend some time walking through the report. I had inquired about posting a full copy of the report in PDF form. Although Meunier understands the interest of readers to get their hands on it, at this time Morgan Stanley has not approved any posting of the note, I’m sorry to say.

Perhaps the biggest takeaway is that although hardware is mentioned prominently as the initial beneficiary, Meunier thinks software may have the bigger payoff.

Which is a lot to say for someone like Meunier whose first passion is chip companies.

Meunier did, certainly, have things to say about chips: Freescale (FSL) is an important name with increasing IoT exposure. CSR PLC (CSR), the maker of wireless chips for bluetooth, should benefit from increasing connections inside the proliferating devices. The same is true of Silicon Labs (SLAB), though Morgan Stanley doesn’t formally cover that name.

In sensors, privately held Robert Bosche has about a third of the market for wireless chips of the “micro-electromechanical,” or MEMS, variety, roughly the same as for ST Microelectronics (STM).

But in the area of software, Meunier points out how profound a change the IoT may be, with General Electric (GE), of all companies, bulking up on application development.

GE has a software business related to Internet of Things, called “Predix,” which can be used for things like optimizing assets of companies in many different industries. Meunier flipped open the report to page 45, where Predix is described as a nearly $1 billion business:

To date, GE has launched 24 Predix products during 2012/13, of which 14 were announced at the October 2013 GE Minds & Machine show in Chicago. GE has said it hopes to double the rate of annual new product launches. At this show, GE announced that these products had received $400m of bookings that had converted into $290m of revenues. At that pace, it seems likely that sales could exceed a $1bn run-rate by the end of 2014.

It’s possible that, as odd as it may seem, that such old-world companies investing in software “may increasingly be viewed as software companies of a sort,” says Meunier.

But perhaps his greatest praise was left for Splunk (SPLK), the Big Data and analytics technology provider. Splunk’s wares have been used for things such as log analysis, for applications in computer security. But the applications are much bigger. “Splunk is great at sifting and analyzing large data sets of unstructured data,” he notes. As more and more devices get connected to the Net — wearables, wireless crop-monitoring systems, home infrastructure — there is a large role for Splunk’s software to play in analyzing and managing all those connections, he muses.

“Their addressable market can become much bigger” than what it is now, he says.

When, toward the end of the discussion, I asked Meunier if one company will emerge from IoT of the scale of an Apple (AAPL) or Google (GOOG), Meunier remarked, “I think Splunk. I think they can be like the Google of this.”

Splunk shares are covered by Morgan Stanley’s Keith Weiss, who has an Equal Weight rating on the stock.

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There are 6 comments

APRIL 8, 2014 6:36 P.M.

Anonymous wrote:

I put more faith in your closing question than his answer. The "google or apple" of the iot will be google or apple.

APRIL 8, 2014 9:15 P.M.

Anonymous wrote:

BSQR is a pretty cheap option in the IOT space

APRIL 9, 2014 12:50 P.M.

Anonymous wrote:

do nt know

APRIL 9, 2014 11:30 P.M.

SillyConValley wrote:

software may have the bigger payoff.??? Any moron in silicon valley knows this. The margins in software are way higher. Lot less to make another software disc (or download) than any hardware. How much does this guy make to have a firm grasp of the obvious. Geez, I think I missed my calling.

APRIL 10, 2014 1:11 P.M.

Kopp wrote:

No mention of Echelon?

APRIL 11, 2014 6:27 P.M.

Anonymous wrote:

You cant be "The Google" if you are not SaaS... more like Loggly or Sumo

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.